2. Summary of significant accounting policies (cont’d)
2.18 Construction contracts
The Group principally operates fixed price contracts. Contract revenue and contract
costs are recognised as revenue and expenses respectively by reference to the stage
of completion of the contract activity at the end of the reporting period (the percentage
of completion method), when the outcome of a construction contract can be estimated
reliably.
The outcome of a construction contract can be estimated reliably when: (i) total contract
revenue can be measured reliably; (ii) it is probable that the economic benefits associated
with the contract will flow to the entity; (iii) the costs to complete the contract and the
stage of completion can be measured reliably; and (iv) the contract costs attributable to
the contract can be clearly identified and measured reliably so that actual contract costs
incurred can be compared with prior estimates.
When the outcome of a construction contract cannot be estimated reliably (principally
during early stages of a contract), contract revenue is recognised only to the extent of
contract costs incurred that are likely to be recoverable and contract costs are recognised
as expense in the period in which they are incurred.
An expected loss on the construction contract is recognised as an expense immediately
when it is probable that total contract costs will exceed total contract revenue.
In applying the percentage of completion method, revenue recognised corresponds to
the total contract revenue (as defined below) multiplied by the actual completion rate
based on the proportion of total contract costs (as defined below) incurred to date to the
estimated costs to complete.
Contract revenue - Contract revenue corresponds to the initial amount of revenue agreed
in the contract and any variations in the contract work and claims to the extent that it is
probable that they will result in revenue, and they can be reliably measured. A variation
or a claim is recognised as contract revenue when it is probable that the customer will
approve the variation or negotiations have reached an advanced stage such that it is
probable that the customer will accept the claim.
Contract costs - Contract costs include costs that relate directly to the specific contract
and costs that are attributable to contract activity in general and can be allocated to
the contract. Costs that relate directly to a specific contract comprise: site labour costs
(including site supervision); costs of materials used in construction; depreciation of
equipment used on the contract; costs of design, and technical assistance that is directly
related to the contract.
At the end of each reporting period, the aggregated costs incurred plus recognised
profit (less recognised loss) on each contract is compared against the progress billings.
Where costs incurred plus the recognised profits (less recognised losses) exceed progress
billings, the balance is presented as construction work-in-progress. Where progress
billings exceed costs incurred plus recognised profits (less recognised losses), the balance
is presented as progress billings in excess of construction in work-in-progress.
NOTES TO THE FINANCIAL
STATEMENTS
For the financial year ended 30 June 2015
ASL Marine Holdings Ltd. /Annual Report 2015
91
